What happens with regards to who pays the insurance deductible?
I know it’s not a very popular topic but if you are a homeowner or a contractor you are going to want to read on to understand what happens with regards to who pays the insurance deductible. For many roofing contractors out there, this is a very black and white scenario because it is illegal for a contractor to pay the deductible. And, as a homeowner, your insurance policy is a contract between you, the homeowner, and your insurance company.
Roofing contractors that cover a homeowner’s deductible are lying to the insurance and mortgage companies. It affects everybody, and I am going to explain in detail what the issues are. If you are a roofing business owner, there is a huge difference between what happens when a homeowner pays the deductible versus you the business owner paying. So, please read on, it may just help you decide to stop covering deductibles as well as to understand and recognize the varied problems with doing so.
I understand both sides of the coin. In my roofing business area, we have a lot of competition that covers deductibles and we must have this conversation with homeowners all the time. In six years of operations, we have never covered deductible. Last year we collected about one hundred and seventy thousand dollars in deductibles.
So, I understand deductibles inside and out when it comes to roofing and I want to help you understand the line between the two as well as the factors that contribute to the deductible.
According to CNBC in 2018 only 39% of Americans have enough savings to cover a $1,000 unexpected expense.
I don’t blame homeowners from being upset when they have unexpected roof problems caused by things like hail damage, storm damage, hurricane damage, and don’t have the money to pay their deductible to get the roof fixed. When you’re in the sixty one percent of people who cannot write a check for a thousand dollars, it’s a tough situation. I feel for you but doing it the wrong way doesn’t make it right, it only contributes to the problem.
When an insurance company gives you an estimate about how much a premium is going to be, they’re going to ask you a question about how much can you pay in case something bad happens and you must file a claim. The higher your homeowner’s insurance deductible, the lower your premiums will be.
However, that means lower payouts from your insurer when terrible things happen. So, it’s crucial to understand the trade-off you’re making and settle on a homeowner’s insurance deductible that makes sense for you and your finances.
Insurance companies can calculate all the factors that would trigger a claim. They know the areas that are particularly prone to recurring or special risks. For example, they know how many hail events occur in an area, how many storm events, how many hurricane events, they know it all and they calculate their risk. The only way you can be sure of the factors that contribute to your deductible calculation is to check your policy or talk to your insurer.
From an insurance company’s point of view, a deductible is great because it cuts down on the number of minor claims it must process and lowers payments on major ones. Taking on less risk allows insurers to lower your premiums when you choose a higher deductible amount. A high deductible can knock between twenty and forty percent off your homeowner insurance payments, depending on your insurer and how much coverage you have.
Insurance Companies are the Biggest Fraudsters in the Construction Industry.
I’m sorry to break it down like that but I can prove it. Insurance companies commit more fraud than anybody else in the construction industry. They do it daily, they do it systematically.
It’s sometimes a good idea not to see your deductible as the limit above which you’re going to make a claim. True, the whole point of a low deductible is to safeguard you from even small losses, but minor claims can turn out to be uneconomic.
That’s because one of the largest statistics of risk used by insurers when they calculate your premiums is your history of making claims. Statistically, if you’ve made claims in the past, you’re more likely to do so again.
So, following a claim, your insurance company may well raise your premiums when you come to renew. And that just might see you in the long run paying more than if you hadn’t reported the loss in the first place. On average home insurance premiums increase based on initial claims about twenty to forty percent.
It Works Like This
Let’s say you just got hit with hail damaged recently. So, the insurance company comes out and writes a $10,000 estimate. But guess what, it’s supposed to be $13,000 and here’s how it works in real life.
The insurance adjuster is trained to save the insurance company money. So, he knows all the codes, he knows that every house gets all the accessories in the estimate, he is supposed to write up the full estimate with all the accessories. The problem starts when the insurance adjuster who is the expert is somehow missing or knowingly forgets items on the estimate. That is committing fraud and you’re talking about an army of those adjusters who are doing that every single day.
Ninety percent of construction businesses fail under two years. Let me explain how it works. That adjuster that wrote a ten-thousand-dollar estimate for a thirteen-thousand-dollar job knows full well that there are a lot of contractors in the market who will take the job for that ten grand. Not only will they do the job for that low estimate, but they will eat the deductible because that this what the homeowner is demanding.
I always say numbers don’t lie. People who don’t charge enough for the work, they eat the deductible, who work for the bare minimum wages because they’re desperate, they don’t know how to market themselves, maybe it’s a side job, maybe that person works for another company, there is no way they can be successful in the long term and that hurts everybody.
Here is what’s happening, here’s how eating the deductible affects everyone and affects this business construction failure rate. So, the insurance company is already shorting the roofing contractor and then on top of that the homeowners are saying we cannot pay the deductible. Now it is clear to see what happens is roofers are working for bare minimums and they fail.
However, there is a flip side to all this. If homeowners, do pay the deductible then that is a step in the right direction, you are doing it right. Why because now you’re going to get a good warranty because that construction owner who receives the deductible can now afford to take better care of their employees and stay in business. He can do good things for the business to help him survive and not to be in the 90 percent failure rate.
So that business is going to be around for the long term. If you need them to fix any issues you can call them, and they will still be in business. If you call five years later because something went wrong that business is going to come back. That same business can now do warranty work because you invested in the company by paying the deductible and not making them eat it.
So, business owners who are actual planning on staying in business, it’s a good practice, it’s the right thing to do, it helps both industries if you insist on the homeowner paying the deductible every time. It helps everybody. It helps the construction industry because insurance industry’s premiums are going to be right. People are not going to be paying more in insurance and everything balances out when homeowners are paying deductibles.
White and Black There is no Gray Line
Homeowners are often approached by seemingly legitimate contractors and told it is legal to cover a deductible on insurance repairs. Some roofers make it such a common practice they openly advertise it on yard signs and door hangers. While the offer of an entirely free roof may sound appealing, it is illegal. Homeowners who do not pay their deductibles are technically committing a form insurance fraud. Roofing contractors that cover a homeowner’s deductible are lying to the insurance and mortgage companies.
Because insurance companies will automatically subtract the deductible from the claim payment, roofing contractors that cover deductibles either must bloat their estimates to cover the deductible or find a way to complete the job for less than it actually costs, usually through shoddy workmanship, cheap labor or cheap materials. If a contractor knowingly misleads or overvalues an estimate to cover the cost of the deductible, then that is considered insurance fraud.
Contractors can get very creative about how they go in and cover a homeowner’s deductible. They put up the yard sign and say this is an advertising fee and you don’t have to pay the thousand-dollar deductible. I’ve heard it all and to me it is black and white, right and wrong. When it comes to covering a homeowner’s deductible always choose not to compromise on ethics or break the law.
There are two sides to every story and obeying the law is good for all parties involved. If you ever get audited, if insurance companies ever start investigating a fraud, both the contractor and the homeowner can get in trouble. It’s just not good for anybody.
What Happens When you don’t Pay Deductible?
The bigger problem is it’s a very poor business decision for a roofer to eat the deductible. If that business is forgiven a one thousand dollars deductible and he’s doing it every day because a roofer usually does one roof a day and he does it for every single job, he just ate five thousand dollars in one week. Next week its another five thousand dollars.
What’s happening when businesses don’t charge enough, and I see it all the time, they don’t have money to cover their expenses. They don’t have anything left for business emergencies when something bad happens. What do you think is going to happen when you just wave thousands of dollars away?
Yes, you might be a great roofer but you’re making real poor business decisions with questionable integrity. I see it all the time, nice people, hard-working guys, bad business skills.
Very Questionable Integrity
If you’re the business owner offering to pay deductibles how do you get around that expense. It’s not like you can do it for less so you create a bigger invoice which is fraud so it’s a higher risk for all parties. You risk losing everything when you’re not charging enough. The homeowner is at risk to lose their 20-year warranty.
If a contractor deliberately deceives or exaggerates an estimate to cover the cost of the deductible, then that is considered insurance fraud. For example, if a homeowner had a deductible worth $1,000 and the damage is estimated at $10,000, $9,000 should come from insurance and $1,000 from the homeowner. Now let’s say a contractor knowingly inflates the damages to $11,000. The financial liability of the carrier rises to $10,000, and the contractor does the repair without the homeowner deductible. Knowingly falsifying an estimate to allow for an increase in carrier payouts is insurance fraud. There are substantial criminal penalties for this type of fraud and hurts all parties involved.
A homeowner’s insurance policy is a contract between you, the homeowner, and your insurance company. The policy outlines the liabilities of each party should an unforeseen event occur, and a claim needs to be filed. In that contract, there is a section that clarifies what the homeowner is liable for, the deductible, and what the insurance carrier is responsible for, benefits, limits, and exclusions. It’s not just the insurance companies that have a financial obligation if something happens; all homeowners have liabilities as well. Homeowners who do not pay their deductibles are technically committing a form insurance fraud.
If you’re the homeowner that does not have a thousand bucks instead of committing fraud come up with something like financing. Maybe sell something but do it right. You’re going to enjoy the house for a long time, the value is going to go up, you’ll be a happier person, you will sleep better.
This is my message to you this is how I look at deductibles it’s something that we need to talk about. Let me know what you guys think in comments below. If you don’t agree with me totally fine, you’re not going to offend me. If you have arguments towards covering deductible or not paying deductible, I want to hear from you. Let me know what your argument is and let’s start the conversation.
I read all my comments and I promise you I’ll get back to you right away because I want to talk about it. We need to because it affects us all. If you like this type of content, there is more of it coming up soon.
Also, if you want to learn more about running a successful roofing business sign up for one of my roofing business classes and learn more valuable roofing insights. Thank you for reading.